Warner Music Group Corp. Reports Results for the Fiscal Fourth Quarter and Full Year Ended September 30, 2012

Digital Recorded Music revenue growth more than offset physical decline in the fiscal year

Adjusted OIBDA and Adjusted OIBDA margin expanded in the quarter and fiscal year

Positive Free Cash Flow of $80 million for the quarter and $151 million for the fiscal year

Warner Music Group Corp. today announced its fourth-quarter and full-year financial results for the period ended September 30, 2012.

"We had a very productive year. Warner Music Group performed well and is positioned to capitalize on the industry's more stable recent trends," said Stephen Cooper, Warner Music Group's CEO. "Among our important achievements, we grew global digital and physical Recorded Music sales on an aggregate basis, for the quarter and the fiscal year."

"We improved Free Cash Flow significantly for both the quarter and the full fiscal year, and we nearly doubled our cash balance to $302 million at September 30th -- up by $148 million for the fiscal year," added Brian Roberts, Warner Music Group's Executive Vice President and CFO.

Total WMG

Total WMG Summary Results

(dollars in millions)

For the Three Months ended September 30, 2012

For the Three Months ended September 30, 2011

% Change

For the Twelve Months ended September 30, 2012

For the Twelve Months ended September 30, 2011

% Change

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Revenue

$

731

$

718

2

%

$

2,780

$

2,867

(3

%)

Digital Revenue

241

210

15

%

925

820

13

%

Operating income (loss)

41

(21

)

-

109

32

241

%

Adjusted operating income (loss) (1)

49

40

23

%

124

100

24

%

OIBDA(1)

103

41

151

%

353

290

22

%

Adjusted OIBDA(1)

111

102

9

%

368

358

3

%

Net loss attributable to Warner Music Group Corp.

(18

)

(103

)

83

%

(112

)

(205

)

45

%

Adjusted net loss attributable to Warner Music Group Corp.(1)

$

(10

)

$

(42

)

76

%

$

(97

)

$

(137

)

29

%

(1) See "Supplemental Disclosures Regarding Non-GAAP Financial Measures" at the end of this release for details regarding these measures.

Fourth-Quarter ResultsFor the quarter, revenue grew 1.8%, and 7.3% in constant-currency, as physical Recorded Music revenue and total digital revenue both grew, helped by a more robust release schedule. Constant-currency revenue growth in Japan, Germany, Italy and the U.S. was partially offset by weakness in France related to the company's concert promotion business, and declines in Latin America, Spain and the U.K. Digital revenue grew 14.8%, or 18.1% in constant-currency, and digital revenue represented 33.0% of total revenue for the quarter, compared to 29.2% in the prior-year quarter. The growth in digital revenue reflects growth in subscription/streaming services and global downloads.

Adjusted operating margin expanded 1.1 percentage points to 6.7% from 5.6%. Adjusted OIBDA grew 8.8% and Adjusted OIBDA margin expanded 1.0 percentage point to 15.2% from 14.2%. The growth in Adjusted OIBDA margin was related to the continued shift to digital in the company's Recorded Music business as well as the decline in lower-margin European concert promotion revenue. Operating income, adjusted operating income, OIBDA and Adjusted OIBDA for the quarter included $14 million of severance charges ($11 million in Recorded Music, $2 million in Music Publishing and $1 million in Corporate) compared to $10 million of severance charges in the prior-year quarter ($7 million in Recorded Music and $3 million in Corporate) (the "Quarterly Severance Charges"). See below for calculations and reconciliations of OIBDA, Adjusted Operating Income and Adjusted OIBDA.

Adjusted net loss reflects the impact of a decline in interest expense, to $56 million from $72 million, related to the July 2011 refinancing of certain existing indebtedness in connection with the acquisition of the company by Access Industries. The refinancing in the prior-year quarter resulted in $19 million in tender/call premiums and $15 million of accrued interest paid in connection with the debt obligations repaid in full. See below for calculations and reconciliations of Adjusted Net Income (Loss).

As of September 30, 2012, the company reported a cash balance of $302 million, total long-term debt of $2.21 billion and net debt (total long-term debt minus cash) of $1.90 billion.

Cash provided by operating activities was $102 million compared to cash used in operating activities of $34 million in the prior-year quarter. Free Cash Flow, defined below, was $80 million compared to negative $52 million in the prior-year quarter. The primary factors impacting the comparison of Free Cash Flow were the prior-year quarter's $46 million in expenses related to the acquisition of the company by Access Industries in July 2011 (the vast majority of which were paid in the fourth quarter of fiscal year 2011) and the $34 million in cash paid for tender/call premiums and interest in connection with the July 2011 refinancing.

Full-Year ResultsFor the fiscal year, growth in digital revenue more than offset physical revenue declines in the company's Recorded Music business. However, this net growth was more than offset by declines in Artist Services and Expanded Rights revenue, Recording Music licensing revenue and Music Publishing revenue. Digital revenue grew 12.8%, or 14.1% in constant-currency, and represented 33.3% of total revenue, compared to 28.6% in the prior year.

Adjusted operating margin expanded 1.0 percentage point to 4.5% from 3.5% in the prior year. Adjusted OIBDA grew 2.8% and Adjusted OIBDA margin expanded 0.7 percentage points to 13.2% from 12.5% in the prior year. Operating income, adjusted operating income, OIBDA and Adjusted OIBDA in the fiscal year included $42 million of severance charges ($35 million in Recorded Music, $4 million in Music Publishing and $3 million in Corporate) compared to $38 million of severance charges in the prior fiscal year ($24 million in Recorded Music, $6 million in Music Publishing and $8 million in Corporate) (the "Fiscal-Year Severance Charges").

Adjusted net loss reflects an increase in interest expense, to $225 million from $213 million, as a result of the July 2011 refinancing of certain existing indebtedness in connection with the acquisition of the company by Access Industries, which resulted in new debt obligations which were issued with higher interest rates.

Cash provided by operating activities was $209 million compared to cash used in operating activities of $52 million in the prior fiscal year. Free Cash Flow was $151 million, compared to negative $221 million in fiscal year 2011. The primary factors impacting the comparison in Free Cash Flow between the fiscal years were the prior fiscal year's $53 million in expenses related to the acquisition of the company by Access Industries (the vast majority of which were paid in the fiscal year) and $41 million in cash paid for tender/call premiums and interest, largely driven by the July 2011 refinancing in connection with the acquisition of the company by Access Industries.

Recorded Music

Recorded Music Summary Results

(dollars in millions)

For the Three Months ended September 30, 2012

For the Three Months ended September 30, 2011

% Change

For the Twelve Months ended September 30, 2012

For the Twelve Months ended September 30, 2011

% Change

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Revenue

$

605

$

582

4

%

$

2,275

$

2,342

(3

%)

Digital Revenue

222

194

14

%

864

768

13

%

Operating income (loss)

35

13

169

%

120

110

9

%

Adjusted operating income (loss) (1)

35

21

67

%

120

118

2

%

OIBDA(1)

77

54

43

%

283

282

-

Adjusted OIBDA(1)

$

77

$

62

24

%

$

283

$

290

(2

%)

(1) See "Supplemental Disclosures Regarding Non-GAAP Financial Measures" at the end of this release for details regarding these measures.

Fourth-Quarter ResultsThe company's Recorded Music business experienced growth in both physical and digital revenue due to a more robust release schedule. Recorded Music digital revenue grew 14.4%, or 17.5% in constant-currency, and represented 36.7% of total Recorded Music revenue, compared to 33.3% in the prior-year quarter, as subscription/streaming and download revenue were both strong. Domestic Recorded Music digital revenue was $130 million, or 57.3% of total domestic Recorded Music revenue, compared to 47.6% in the prior-year quarter. Artist Services and Expanded Rights revenue declined, driven primarily by the decline in tours in the company's European concert promotion business, particularly in France. Major sellers included Kobukuro, Tatsuro Yamashita, Green Day, Superfly and Muse.

Recorded Music adjusted operating margin expanded 2.2 percentage points to 5.8% from 3.6% in the prior-year quarter. Recorded Music Adjusted OIBDA grew 24.2% and Recorded Music Adjusted OIBDA margin expanded 2.0 percentage points to 12.7% from 10.7% in the prior-year quarter related to revenue growth in Japan, which is typically a higher-margin territory. Operating income, adjusted operating income, OIBDA and Adjusted OIBDA reflect the impact of the Quarterly Severance Charges.

Full-Year ResultsGrowth in digital revenue more than offset the decline in physical revenue on a global basis. This marks the first fiscal year in five years where physical and digital sales grew on a combined basis. However, this growth was more than offset by declines in Artist Services and Expanded Rights revenue and Recorded Music licensing revenue. The decline in Artist Services and Expanded Rights revenue primarily relates to a decline in tours in the company's European concert promotion business, particularly in France. Digital Recorded Music revenue grew 12.5%, or 13.7% in constant-currency, and represented 38.0% of Recorded Music revenue for the fiscal year, up from 32.8% in fiscal year 2011. Domestic Recorded Music digital revenue amounted to $489 million, or 53.8% of total domestic Recorded Music revenue, marking the first time digital revenue represented more than half of domestic Recorded Music revenue for the fiscal year. Major sellers across physical and digital formats included Michael Bublé, Kobukuro, Flo Rida, Tatsuro Yamashita and fun.

Recorded Music adjusted operating margin expanded 0.3 percentage points to 5.3% from 5.0% in the prior year. Recorded Music Adjusted OIBDA declined 2.4%, in line with the decline in revenue, while Recorded Music Adjusted OIBDA margin was flat at 12.4%. Operating income, adjusted operating income, OIBDA and Adjusted OIBDA reflect the impact of the Fiscal-Year Severance Charges.

Music Publishing

Music Publishing Summary Results

(dollars in millions)

For the Three Months ended September 30, 2012

For the Three Months ended September 30, 2011

% Change

For the Twelve Months ended September 30, 2012

For the Twelve Months ended September 30, 2011

% Change

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Revenue

$

133

$

141

(6

%)

$

524

$

544

(4

%)

Digital Revenue

22

17

29

%

67

60

12

%

Operating income (loss)

37

40

(8

%)

85

73

16

%

Adjusted operating income (loss) (1)

37

43

(14

%)

85

76

12

%

OIBDA(1)

54

57

(5

%)

152

147

3

%

Adjusted OIBDA(1)

$

54

$

60

(10

%)

$

152

$

150

1

%

(1) See "Supplemental Disclosures Regarding Non-GAAP Financial Measures" at the end of this release for details regarding these measures.

Fourth-Quarter ResultsMusic Publishing revenue declined 5.7%, but grew 0.8% in constant-currency. Digital revenue grew 29.4% while mechanical revenue declined 3.2%, but grew 7.1% in constant-currency as result of the timing of certain society collections. Synchronization revenue declined 10.7%, or 3.8% in constant-currency, reflecting lower video game revenue. Performance revenue declined 13.1%, or 7.0% on constant-currency, partially due to an industry-wide reduction in U.S. radio license fees as mentioned last quarter.

Full-Year ResultsThe decrease in Music Publishing revenue was driven by an expected decrease in mechanical revenue due to the ongoing digital transition in the recorded music industry as well as a decrease in performance revenue, partially due to an industry-wide reduction in U.S. radio license fees. This was partially offset by an increase in digital revenue, while synchronization revenue declined slightly, but grew in constant-currency. Digital Music Publishing revenue represented 12.8% of total Music Publishing revenue in the fiscal year, compared to 11.0% in fiscal year 2011.

Music Publishing adjusted operating margin was 16.2%, up 2.2 percentage points from 14.0% in fiscal year 2011. Music Publishing Adjusted OIBDA grew 1.3% while Music Publishing Adjusted OIBDA margin was 29.0%, up 1.4 percentage points from 27.6% in the prior year. The increase in Adjusted OIBDA margin reflects a more disciplined A&R investment and acquisition strategy focused on higher-margin assets. Operating income, adjusted operating income, OIBDA and Adjusted OIBDA reflect the impact of the Fiscal-Year Severance Charges.

Financial details for the quarter and fiscal year can be found in the company's Annual Report on Form 10-K, for the period ended September 30, 2012, filed today with the Securities and Exchange Commission.

This morning, management will be hosting a conference call to discuss the results at 8:30 A.M. EST. The call will be webcast on www.wmg.com.

About Warner Music Group With its broad roster of new stars and legendary artists, Warner Music Group is home to a collection of the best-known record labels in the music industry including Asylum, Atlantic, East West, Elektra, Nonesuch, Reprise, Rhino, Roadrunner, Rykodisc, Sire, Warner Bros. and Word, as well as Warner/Chappell Music, one of the world's leading music publishers, with a catalog of more than one million copyrights worldwide.

"Safe Harbor" Statement under Private Securities Litigation Reform Act of 1995This communication includes forward-looking statements that reflect the current views of Warner Music Group about future events and financial performance. Words such as "estimates," "expects," "anticipates," "projects," "plans," "intends," "believes," "forecasts" and variations of such words or similar expressions that predict or indicate future events or trends, or that do not relate to historical matters, identify forward-looking statements. All forward-looking statements are made as of today, and we disclaim any duty to update such statements. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. However, we cannot assure you that management's expectations, beliefs and projections will result or be achieved. Investors should not rely on forward-looking statements because they are subject to a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from our expectations. Please refer to our Form 10-K, Form 10-Qs and our other filings with the U.S. Securities and Exchange Commission concerning factors that could cause actual results to differ materially from those described in our forward-looking statements.

We maintain an Internet site at www.wmg.com. We use our website as a channel of distribution of material company information. Financial and other material information regarding Warner Music Group is routinely posted on and accessible at http://investors.wmg.com. In addition, you may automatically receive email alerts and other information about Warner Music Group by enrolling your email by visiting the "email alerts" section at http://investors.wmg.com. Our website and the information posted on it or connected to it shall not be deemed to be incorporated by reference into this communication.

Explanation of PresentationThe following tables set forth our results of operations as reported in our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"). GAAP requires that we separately present our Predecessor and Successor periods results. Management believes reviewing our operating results for the three and twelve months ended September 30, 2011 by combining the results of the Predecessor and Successor periods is more useful in identifying any trends in, or reaching conclusions regarding, our overall operating performance. Accordingly, the tables below present the non-GAAP combined results for the three and twelve months ended September 30, 2011, which is also the period we compare when computing percentage change from prior year, as we believe this presentation provides the most meaningful basis for comparison of our results and it is how management reviews operating performance. The combined operating results may not reflect the actual results we would have achieved had the acquisition by Access Industries closed prior to July 20, 2011 and may not be predictive of future results of operations.

We evaluate our operating performance based on several factors, including the following non-GAAP financial measures:

OIBDAOIBDA reflects our operating income before non-cash depreciation of tangible assets, non-cash amortization of intangible assets and non-cash impairment charges to reduce the carrying value of goodwill and intangible assets. We consider OIBDA to be an important indicator of the operational strengths and performance of our businesses, and believe the presentation of OIBDA helps improve the ability to understand our operating performance and evaluate our performance in comparison to comparable periods. However, a limitation of the use of OIBDA as a performance measure is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenue in our businesses. Accordingly, OIBDA should be considered in addition to, not as a substitute for, operating income, net (loss) income and other measures of financial performance reported in accordance with GAAP. In addition, OIBDA, as we calculate it, may not be comparable to similarly titled measures employed by other companies.